Health Care Cost Containment

Introduction

Governor Patrick’s and Lieutenant
Governor Murray’s fiscal year 2012 budget seizes the moment to achieve
ground-breaking progress in health care cost containment – with a vision for
maintaining the Commonwealth’s historic coverage gains and high-quality care
while making health care spending more affordable for the state and taxpayers.
For each of the state’s health care programs - MassHealth, Commonwealth Care,
the Group Insurance Commission and the Medical Security Program – the budget
proposes bold changes emphasizing the power of competition and innovative
contracting to promote continued access to coverage and high-quality care while
achieving significant cost savings. The Administration’s goal is to leverage
the state’s immense purchasing power to be a force for rewarding models that
provide cost-effective, high-quality coverage and care to those who rely on
state health insurance and better coordinate government’s health care
purchasing decisions. It would maintain eligibility for all state-subsidized
health insurance programs - under the most generous eligibility standards in
the nation (see below).

Note: Medicaid
income eligibility for most elderly and individuals with disabilities is based
on the income threshold of Supplemental Security Income (SSI).SOURCE: Based on
a national survey conducted by the Center on Budget and Policy Priorities for
Kaiser Commission on Medicaid and the Uninsured, 2009.

* Senior and
disabled individuals can be up to any income if they meet a certain buy-in
criteria.

Separately, the Administration is
planning on filing comprehensive payment reform legislation in the coming weeks
that will, across the health care delivery system, promote movement away from
“fee-for-service” payments to providers towards “global payments” and other
models that better reward evidence-driven, coordinated, preventive care. In
combination with the Administration’s budget initiatives, this legislation will
place Massachusetts squarely in the forefront of national efforts to contain
health care costs while ensuring high-quality coverage and care.

MassHealth

The Massachusetts Medicaid
program (MassHealth) provides comprehensive health insurance to approximately 1.29
million low-income Massachusetts children, adults, seniors and people with
disabilities. The Administration’s fiscal year 2012 budget includes $10.34
billion for MassHealth, essentially level funding from the fiscal year 2011
estimated spending level of $10.24 billion. Due to tremendous fiscal pressures
in fiscal year 2012 stemming principally from the loss of more than $1.5
billion in federal stimulus funds, the Administration established aggressive
spending targets for all state programs, in many cases reducing funding below
fiscal year 2011 levels.

Massachusetts is not the only
state with a Medicaid budget that has experienced exceptional growth. Medicaid
budgets across the nation have experienced unprecedented spending increases.
Enrollment in Medicaid historically mirrors trends in the economy, with more
individuals turning to public assistance during tougher times. Total national Medicaid
spending growth averaged 8.8% across all states in fiscal year 2010, and
spending is expected to increase by 7.4% in fiscal year 2011. Enrollment growth
averaged 8.5% nationally and is expected to decrease to 6.1% in fiscal year
2011.[1]

Enrollment and utilization are
the greatest cost drivers in MassHealth and are sensitive to changes in the economic
climate. From fiscal year 2008 to fiscal year 2010, long-term unemployed adults
(unemployed for 12 months or more) represented the fastest growing population
in Medicaid, increasing by an average of 16.6% each year. Non-disabled adults
represent the next highest category of growth, increasing by an average of
4.44%. Overall, from fiscal year 2008 through fiscal year 2011, MassHealth
enrollment grew by approximately 146,000 people.

MassHealth Average Enrollment (by member months)

Population

Fiscal Year2008

Fiscal Year2009

Fiscal Year20010

ProjectedFiscal Year2011

ProjectedFiscal Year2012

Non Disabled Children

459,712

469,618

486,806

501,815

519,700

Non Disabled Adults

263,247

273,315

283,176

297,685

314,181

Disabled Children

26,501

26,510

27,371

29,273

30,424

Disabled Adults

207,559

210,506

213,952

223,585

232,326

Long Term Unemployed Adults

66,921

79,642

96,221

110,782

124,235

Seniors

125,483

125,874

128,380

132,194

134,658

Total

1,149,423

1,185,465

1,235,907

1,295,335

1,355,523

% growth from prior year

3.1%

4.3%

4.8%

4.6%

Without smart cost-saving changes
to MassHealth, the Commonwealth could face an $800 million shortfall in fiscal
year 2012 and the prospect of across-the-board cuts to services. Even beyond
the need to achieve savings to address immediate, economy-driven fiscal
challenges facing MassHealth, containing MassHealth costs is critical to the
long-term sustainability of health care reform and the long-term ability of the
state budget to invest in the full range of public needs. Success on
this front would not only maintain our health care safety net for all who need
it as well as facilitate other key public investments, but also – given the
scale of MassHealth – drive positive innovation in the delivery of care
throughout our health care system.

Given these short- and long-term
challenges and opportunities, MassHealth will be pursuing aggressive strategies
to manage its fiscal year 2012 budget. Unlike other state programs, MassHealth
costs are difficult to constrain, since expenditures are driven by caseload and
eligibility is primarily controlled by eligibility standards fixed by the
federal government. Despite these challenges, MassHealth has developed
proposals to improve payment efficiency while preserving services for
MassHealth enrollees.

Starting immediately, MassHealth
plans to conduct a competitive procurement that will focus on reducing costs
while providing quality care to over 800,000 members. The procurement will
include both the managed care and the Primary Care Clinician plan but will not
include seniors or dual eligible members. The goals of the procurement are to
ensure access and quality care for members at the lowest cost. Managed care
organizations (MCO) and providers who demonstrate the ability to provide this
care will have the opportunity to expand membership. The procurement process
will promote innovative
approaches to care management and delivery as well as payments for services for
this population. In addition, MassHealth will begin to lay the foundation for a
comprehensive plan to promote the efficient delivery of care for MassHealth
members under age 65 with a focus on care integration and care management for
the highest-risk populations.

This procurement strategy will only
mitigate a certain amount of growth in MassHealth costs that would otherwise
occur. MassHealth plans to undertake several other steps such as constraining provider
and capitation rates, limiting payments for preventable admissions, implementing
small co-pays for some services, adopting additional program integrity
measures, and limiting coverage for certain optional benefits.

Beginning in fiscal year 2011 and
continuing in fiscal year 2012 and beyond, MassHealth will be launching a
project to manage the dual population that is eligible for Medicare and
Medicaid. MassHealth is engaged in discussions with consumer advisory groups to
ensure that this new integrated care model meets the needs of the younger dual
eligible population and is attractive to members so that they will want to
enroll. The new model’s care entities will be accountable for the
delivery, coordination, and management of health and community support services
that promote improved outcomes and living with dignity and independence in the
community. MassHealth envisions that the Medicare and Medicaid benefits
would be administered jointly through an integrated financing mechanism at the
state level such that dual eligible individuals would experience their coverage
as a single, integrated care program. The Commonwealth is continuing to
pursue this concept with the federal government.

Commonwealth Care

The Commonwealth Care program was
created with the enactment of health care reform and is administered by the
Health Connector. The program provides health insurance coverage for
individuals under 300% of the federal poverty level (FPL) that do not have
access to employer-sponsored insurance. Commonwealth Care fully subsidizes
individuals under 100% of the federal poverty level and institutes a sliding
scale of member premiums for those above that income threshold. It provides
health care services through a fully capitated insurance model. As of January
of 2011, there are 160,824 members enrolled in Commonwealth Care, excluding the
Aliens with Special Status population (see next section on Commonwealth Care Bridge).

The budget provides $822 million
for Commonwealth Care in fiscal year 2012, equivalent to currently projected fiscal
year 2011 spending. These funds are designed to maintain eligibility for the
program and pay for moderate additional enrollment (including coverage for
individuals that transition from the Medical Security Plan to Commonwealth Care
after their unemployment benefits expire).

The Administration envisions that
the Health Connector will conduct a procurement process for the Commonwealth
Care program, which will incent aggressive bidding and achieve savings by
rewarding innovative, lower-priced health plans with increased membership.
This competitive procurement strategy would aim to leverage premium savings
that enable the Health Connector to maintain eligibility for comprehensive
coverage, pay for growing enrollment, and minimize increases in cost-sharing
within a level-funded budget.

Commonwealth Care Bridge

Aliens with Special Status (legal
immigrants who have resided in the U.S. for less than five years) lost
eligibility for Commonwealth Care in fiscal year 2010, due to the extreme
fiscal challenges created by a national economic downturn and the fact that the
federal government does not reimburse states for health insurance coverage for
this population. Instead, a separate investment of $40 million was
appropriated to provide health insurance for this population. This coverage is
now available through the newly created Commonwealth Care Bridge program. The Commonwealth Care Bridge program was maintained in fiscal year 2011 at a projected cost of
$50 million. The Administration’s fiscal year 2012 budget includes level
funding of $50 million for the Commonwealth Care Bridge program, and aims to
maintain coverage for current enrollees through fiscal year 2012.

Commonwealth Care Bridge currently provides coverage to 20,389 Aliens with Special Status, who were enrolled
over a three-month period from October to December of 2009. Enrollees have
been eligible to receive comprehensive coverage through a network of providers
that fully meets the Connector’s Commonwealth Care network adequacy standards.
While cost-sharing is in some instances higher than that for Commonwealth Care
and some benefits are excluded, steps have been taken to reduce any hardships
for members.

Medical Security Program

The Medical Security Program
(MSP) provides health insurance assistance for Massachusetts residents with
family income less than 400% FPL while they are receiving unemployment
benefits. To pursue savings and improve alignment of state-subsidized health
insurance programs, the Administration is requesting that the Health Connector
work with the Division of Unemployment Assistance (DUA) to conduct a new,
competitive procurement for MSP Direct Coverage and restructure the program to
maintain eligibility for adults and children up to 400% FPL while more closely
matching Commonwealth Care coverage.

The alignment between Commonwealth Care and MSP Direct
Coverage will preserve the long term sustainability of the medical security
program, which is funded by an employer assessment through the medical trust
fund. The reform plan is estimated to save up to $10 million in the program,
and as a result, will reduce the impact of rising program costs to employers.

Group Insurance Commission

The Group Insurance Commission
(GIC) will contain costs for employees’ health care by negotiating lower rates
and providing an incentive for employees to join limited network plans. The GIC
will have a full open re-enrollment that will incent employees to move to a
limited network, which costs less than broad network plans. The employees that move
to the lower cost plan in FY 2012 will save on average an estimated $800 for an
individual and $1700 for a family plan which they will see reflected in their
paychecks.

Health Safety Net

Overseen by the Division of
Health Care Finance and Policy, the Health Safety Net (HSN) reimburses
hospitals and community health centers for health care services provided to
low-income uninsured or underinsured residents. Prior to landmark health care
reform legislation in 2007, this financing mechanism was known as the
Uncompensated Care Pool.

Although success in expanding
enrollment in health insurance through health care reform has resulted in
decreased Health Safety Net utilization and payments, the counter cyclical
pressures from the recession have resulted in increased HSN utilization over
the past three years. An unstable economy naturally lends itself to
individuals ‘cycling’ in and out of short-term employment and underinsurance;
the trends in the HSN from fiscal year 2010 through fiscal year 2011 reflect these
natural increases in burden on safety net care.

Health Safety Net Trust Fund - Sources

(in millions)

Source

FY10

FY11

ProjectedFY12

Assessments

$320.0

$320.0

$320.0

Offset

$70.0

$70.0

$70.0

Commonwealth Contribution

$30.0

$30.0

$30.0

Total Sources

$420.00

$420.00

$420.00

Health Safety Net Trust Fund - Uses

(in millions)

Uses

FY10

FY11

ProjectedFY12

Hospital Costs

$372.0

$449-$474

$449-$499

CHCs

$42.0

$64.7

$65.0

Demos (Admin)

$6

$6.0

$6.0

Total Uses

$420

$520-$545

$520-$570

Despite the unprecedented fiscal
challenges in fiscal year 2012, the Administration is maintaining a $30 million
General Fund contribution the Health Safety Net in its fiscal year 2012 budget
proposal. We will continue to closely monitor the Health Safety Net and refine
projections for fiscal year 2011 and 2012 demand based upon updated
information.

Municipal Health Care

The
Administration proposes a new health insurance plan required for cities and
towns that can save up to $95 million for cities and towns across the
Commonwealth. The Administration is also committed to filing legislation that
mandates the enrollment of eligible retired local employees into Medicare as their
primary source of health insurance coverage; municipalities will save between $15
million to $30 million a year as a result.

Small Business Health Care Cost Containment

The Health Connector will be
launching updates in July to its Commonwealth Choice program, which creates a
streamlined, simplified process for small businesses and individuals to shop
for unsubsidized, name-brand health insurance, saving them money by making it
easier for them to understand their options and choose better-priced health plans.
The Health Connector will be enhancing the Commonwealth Choice shopping
experience by enabling small businesses and individuals to search whether a
desired hospital or doctor is covered through the health plans they are
considering.

The Health Connector will eliminate
a fee it currently charges small businesses to shop through Commonwealth
Choice. This fee was already significantly lower than those charged when
small businesses shopped through other intermediaries, and now it will be
eliminated starting in July.

The Administration’s fiscal year
2012 budget includes $10 million (including $2.5 million contribution from the
Health Connector) to enable the Health Connector to implement a provision of
Chapter 288 calling on it to offer premium discounts for certain small
businesses which purchase coverage through Commonwealth Choice and set up
wellness programs for their employees. This will reduce premiums for
qualifying small businesses by up to 5%.

Money Follows the Person

In January 2011, Massachusetts applied to join Washington D.C. and the 29 other states already participating
in “Money Follows the Person Rebalancing Demonstration” (MFP). With federal
support, states will have additional programmatic and financial tools to
rebalance their long-term care systems. The approval of the project will
strengthen the Administration’s Community First initiative to transition long
term care residents to the community from facility settings and improve MassHealth’s
quality infrastructure, data resources and reporting capabilities. MassHealth
also plans to create two new Home and Community-Based Waivers for MFP
Demonstration participants who will need more intensive supports on an ongoing
basis once they transition from facilities.

Patient-Centered Medical Home Initiative (PCMHI)

The Administration has committed
to assist 46 primary care practices, including community health centers,
hospital-affiliated primary care offices, and group and solo practices, to
transition into certified medical homes focused on integrated and
patient-centered care. Selected primary care practices will work toward
mastering core competencies in patient-centered care over the course of three
years and will receive training support, technical assistance and funding from
the state. To help practices achieve core competencies and transform their
operations, each participating practice will receive on-site, individualized
coaching from a medical home facilitator and membership in a learning
collaborative that includes in-person conferences, online trainings and evidence-based
performance evaluation.

Electronic Health Record (EHR) Initiative

The Administration is committing
$500,000 as the state share to operate the implementation of the MassHealth
Electronic Health Record (EHR) initiative, which will offer provider incentive
payments with 100% federal participation funding to encourage Medicaid health
care providers to adopt, implement, upgrade or meaningfully use certified EHR
technology. MassHealth plans to distribute up to $50 million to approved health
care entities to support transitions to electronic health record systems in
fiscal year 2012.